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Germany’s stock market sank 2.14 per cent, Italy was down 1.77 per cent and France dropped 1.75 per cent.

The heavy selling in London has hit the value of pension pots and other investments in a blow to millions of British savers.

The vast majority of workers with pensions are exposed to the stock market through funds linked to the Footsie which includes corporate giants such as BP, Vodafone, Tesco and HSBC.

‘The millions of people who are exposed to the index through their pensions and investments have been dealt a pretty heavy blow by the turmoil in China,’ said Laith Khalaf, senior analyst at savings and investments firm Hargreaves Lansdown.

Fear: Analysts warned that a ‘stench of fear’ now hangs over the markets following the drops

A slowdown in the Chinese economy has alarmed investors – and even outweighed concerns about Greece and the potential break-up of the eurozone.

Economic output in China rose by 7.4 per cent last year – its slowest pace in 24 years – and the ruling Communist party in Beijing looks set to struggle to its full-year growth target of ‘around seven per cent’ this year.

The downturn could dent growth in Western nations such as Britain where companies increasingly look to China to buy their goods and services.

China is now Britain’s sixth biggest export market and sales of UK goods to the People’s Republic rose nearly six per cent last year to over £14billion.

‘We advise strapping in for a bumpy ride,’ said Tim Condon, head of Asia research for ING Bank in Singapore.

Analysts in London said events in China are now causing more concern than those in Greece – particularly after Germany approved a third bailout for the stricken eurozone country.

Mining stocks in London have been particularly badly hit in recent weeks as the price of metals such as copper tumble on the back on weakening global demand.

Mr Khalaf said: ‘Markets are looking east and don’t like what they are seeing.

‘Slowing economic growth, currency devaluation, and stock market mayhem in China have hit commodities and mining stocks, and with them the UK stock market.

‘The fact UK stocks fell so steeply despite Germany signing off on the Greek bailout underlines how peripheral this issue has now become, and how quickly the market can switch its focus.’

The London stock market has suffered 11 days of losses so far this month and just two days of gains.

David Buik, a market analyst at stock broker Panmure Gordon, said ‘the stench of fear’ now hangs over trading floors in London and other European capitals.

‘This seven-day loosing run will rattle the cage of pensioners and fund managers,’ he added.